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VW profit set to shine despite Dieselgate clouds

Investors have delved into VW shares after the embattled carmaker forecast a higher-than-expected operating profit, shrugging off news the company booked another huge charge for its emissions-cheating scandal.

Investors have delved into VW shares after the embattled carmaker forecast a higher-than-expected operating profit, shrugging off news the company booked another huge charge for its emissions-cheating scandal.
In an unscheduled update ahead of interim results on July 28, VW said on Wednesday its first-half operating profit before one-off items rose 7 percent to 7.5 billion euros ($8.24 billion), from 6.82 billion euros in the same period a year ago.

We continue to believe that the market is complacent with respect to the amount and speed of change that the VW new management team is currently implementing,” he told the news agency Reuters.

Shares in VW jumped more than five percent at the Frankfurt Stock Exchange upon the news, helped also by Barclays’ analysts who gave the stock an “overweight” rating, saying in a note that VW was starting to move “in the right direction.”

Dieselgate still haunting VW

In its statement, the German carmaker, however, also said that it was forced to set aside another 2.2 billion euros “mainly related to further legal risks predominantly arising in North America.”

In September, VW admitted it had equipped its diesel cars with illegal software to cheat emissions tests in the United States. It later said around 11 million diesel vehicles worldwide had been fitted with such defeat devices.

The latest charge adds to 16.2 billion euros VW was already forced to set aside in provisions due to the scandal. Including the one-off item, VW’s first-half net profit, therefore, is expected to come in at 5.3 billion euros – down by 22 percent over the year.

VW’s announcement came about a month after VW agreed to a record $14.7-billion payout to settle civil claims in the United States, but it is still a long way from drawing a line under the scandal.

Just this week, the US states filed lawsuits suggesting that VW senior executives were aware early on of efforts to hide high emissions levels in the company’s diesel cars. Moreover, the company faces a slew of other lawsuits worldwide, including regulatory probes and lawsuits filed by car owners who feel they have been duped. Investors are also seeking compensation for the massive drop in the value of their shares. Analysts suggest the final cost of the affair could rise to between 20 and 30 billion euros.

Hopes for a turnaround?

According to VW, the improvement in operating performance was driven by its mass-market VW brand and helped by rising European car sales, cost cutting and a return of orders from large corporate fleets. VW is in the midst of a cost-cutting drive across the group aimed at making billions of euros of savings.

Markets in Russia and South America, VW said would, however, remain challenging, with the result that its forecast for a full-year decline in group revenues of up to five percent and an operating return on sales of between five and six percent would not change.

Analysts believe that a turnaround for the carmaker depends very much on current talks with labor unions that are fraught with union demands for fixed quotas on production, investment and output that could limit savings.